22.Wizard Company has an old machine that is fully depreciated but has a current salvage value of $10,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are:Increased revenues $120,000Increased expenses Salary of additional operator$56,000 Supplies14,000 Depreciation 12,000 Maintenance8,00090,000Increased net income $30,000(Ignore income taxes in this problem.) Required:1. What is the payback period on the new equipment?2. What is the simple rate of return on the new equipment?

1. Payback Period Calculation The payback period is the amount of time it takes for an investment to…

Answered: 22. Wizard Company has an old machine…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 17P

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22.

Wizard Company has an old machine that is fully depreciated but has a current salvage value of $10,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are:

Increased revenues		$120,000
Increased expenses
Salary of additional operator	$56,000
Supplies	14,000
Depreciation	12,000
Maintenance	8,000	90,000
Increased net income		$30,000